tv Nightly Business Report PBS December 12, 2011 6:30pm-7:00pm PST
>> susie: big warnings today-- one from technology giant intel about weaker profits, and two ratings agencies caution europe's fix for its debt crisis may not be big enough. >> the biggest risk to u.s. equities is definitely coming from overseas-- namely europe. >> tom: we look at the risks in europe. noted economist simon johnson joins us to explain why europe is weighing on u.s. markets and businesses. it's "nightly business report" for monday, december 12. this is "nightly business report" with susie gharib and tom hudson. "nightly business report" is made possible by:
captioning sponsored by wpbt >> susie: good evening everyone. so much for all that optimism over europe's rescue plan. stocks fell sharply on wall street as investors doubt europe's latest plan will solve the region's debt crisis. tom, investors had a weekend to analyze that inter-governmental treaty and it looks like it got a thumbs down today. >> tom: susie, investors also reacted to new warnings today from two credit ratings agencies. both fitch ratings and moody's investors service warned the latest european plan did not reduce the risks of a recession in the region. as you recall, standard & poor's said last week it could soon lower the credit ratings of 15 european countries as the region faces a possible recession. all that added up to a broad
sell off. the dow fell 162 points by the close. it had been down as much as 230 points earlier in the session. the nasdaq lost 34 and the s&p 500 was off 18. >> susie: many market strategists now believe europe will continue to be the biggest risk for u.s. stocks next year. erika miller reports. >> reporter: the new european pact may have been what stock investors were hoping for last week. today, the markets worried it won't bring an end to the crisis. >> we are moving in the right direction, but sometimes the market wants the quick fix, and we don't think that's going to be possible. >> reporter: underscoring that fear was a warning from moody's investor's service that "the crisis is in a critical and volatile stage." the firm plans to review the
ratings of all european union nations in the first quarter of next year. rival fitch ratings said the summit "does little to ease pressure" on the sovereign-debt crisis and predicts a "significant" economic downturn in europe in the short term. investors are hoping the european central bank will start acting more like the u.s. federal reserve and backstop europe's sovereign debt market. strategist stephen wood says that's not going to happen. >> the european central bank is saying, by law and by predilection, that they are not going to go in and essentially print money to bail out what would be considered irresponsible government policies. >> reporter: as a result, he thinks worries about a splintering of the european union are likely to keep markets on edge. the other big fear is what new european austerity measures will mean for the global economy and banking system. >> europe right now is moving into a recessionary environment, which the united states is not. but i think the market's afraid europe is going to have their own lehman-like event unless they get in-front of this. >> reporter: in spite of that uncertainty, some strategists believe stocks can still do well.
many market strategists think u.s. earnings can continue to grow, as long as the crisis in europe doesn't spread. erika miller, "nightly business report," new york. >> susie: our guest tonight says he's negative on europe's so- called "fiscal compact." he's simon johnson, economics professor at m.i.t.'s sloan school of management and former chief economist at the international monetary fund. simon, nice you have back with us. >> thanks for having me. >> susie: well, let's start out by finding out why are you negative on this latest deal from europe? >> well, the europeans obviously have some serious systemic problems, mostly about fiscal policy but also about their competitiveness in the so you will cad periphery and really they've done nothing address these fundamental issues. just throwing a little bit more austerity into the mix does nothing for them at this point. >> you know, we've had so many summits coming out of europe, so many possible plans. what do you think is the solution? what does europe need to do? >> i think europe needs a constitutional convention like the united states needed one in 1787.
now that's a difficult conversation to have. it was difficult in the 1780s for the united states. but really there is no other way to hold the monetary union together in europe. and the consequence of breaking apart the euro completely will be rather devastating. >> you worked for years with european leaders in your roll at the international monetary fund. i mean how feasible is it to really sit down, tear up the constitution and start all over again. >> honestly, i think they're going to be forced by events to do exactly that. it will take some time there may be some accidents along the way. this is a fairly prague metic set of people. they can also be extremly difficult to deal with. i'm talking about themselves so their attention has to become concentrated and it will become concentrated by the financial markets. >> what do you think of this other idea that's being tossed around a lot, especially on wall street. expectations that europe central bank had to do what the u.s. and federal reserve did during our financial
crisis, take some bold step, buy the toxic assets and you know that will put more money into the system. what do you think of an idea like that of the european central bank taking more dramatic, bolder actions. >> i don't think it's going to work. the united states had a problem with banks and with mortgage related assets. the problem in europe is sovereign debt. it's the governments themselves that are in trouble. and if the european central bank buys up a lot of that debt t will, perhaps, suppress a little bit the risk of default for some government. but it will increase massively all the risks around the euro including the potential for a eurozone breakup. so that risk will come to dominate an all interest rates in europe will rise because of that threat. and that will negatively affect the entire economy. >> let's talk a little bit about what all of this means going on, you heard our report. some concerns about a recession in europe. what would that potentially mean for the u.s. economy
which is beginning to show some signs of growth. >> well, a mild recession would not have consequences that are too dire. but if we're talking about financial turmoil, perhaps the collapse of one or more big banks in europe, that could well spill over to affect us. unfortunately, our financial system is not in particularly good shape. we have wasted pretty much three years with regard to strengthening capital, to increasing the equity behind our biggest banks. they are still too highly leveraged. and this is a major vulnerability for the american economy. >> what are the chances of a collapse, of a big bank whether it's a european bank or a u.s. bank? >> well, i really, i really don't know. it's a very tough situation. the european needs to have move quickly to a proper and complete fiscal solution to their problem. but they are refusing to move despite protestations and pressure from around the world. this is a nail-biting
situation. >> it sure is. what about now that we've heard from all of the rating agencies whether it is s&p, moodies or fitch, that they may downgrade a debt, sovereign debt in europe f they do do that what does that mean for europe and what does it mean for us here in the u.s.? >> well, i think the moves by the credit rating agencies are more responsive than anything else. they're not really driving events for the most part. so perhaps a little bit reinforcing the trends we already see in the market. the credit rating agencies have once again fallen behind. the real pressure is coming from investors who have, i think, given up largely on debt from countries such as greece, portugal and now italy. >> all right. we'll have to leave it there. simon, thank you so much for coming on the program. we really appreciate hearing from you. >> thank you. >> and we've been speaking with simon johnson, economics professor at mit's shown school of management. >> back here in the united
states protestors from the occupy wall street movement >> tom: protestors from the occupy wall street movement took their demonstrations to some of the biggest ports on the west coast today. from the port of long beach to the port of oakland, all the way up to portland, oregon, protestors blocked gates and in some cases managed to shut down terminals. the movement says it considers the ports economic engines for the elite, calling them quote, "wall street on the waterfront." >> susie: still ahead, one industry hoping to put a better face on the market? cosmetics. tonight's "word on the street" looks at three beauty firms building their business on boomers. >> tom: floods in thailand may seem like a world away from silicon valley and wall street, but the bad floods in southeast asia get the blame for the latest profit warning from a semiconductor maker. shares of intel fell 4% after the company told investors the floodwaters in thailand have disrupted p.c. production and hurt sales. it joins texas instruments and altera as computer chip makers issuing profit warnings this quarter. intel says a drop in hard drive production in thailand will cut
revenue this quarter by $1 billion. now intel predicts revenues of $13.7 billion, but as darren gersh reports, many investors are not as bullish as intel. >> reporter: after appearing to dismiss the impact of flooding in thailand on its business, intel today changed its story. and sanford c. bernstein semiconductor analyst stacy rasgon says investors do not like it when that happens so quickly. >> the perception that people had walking out of recent meetings with management-- again, very recently, even within the last couple of weeks- - was different than the outlook they provided today, and so whenever you are providing communication to the street which is at odds with a result you eventually post, that is always a bad thing. people don't like to see that. >> reporter: intel told analysts today the company expects hard drive production from thailand will pick up by the first half of 2012 and with it demand for intel chips should recover too. morningstar analyst brian colello sees the flood as a timing issue, not an indication
of lost market share or falling demand. >> once hard drive production ramps back up-- which might take another six to nine months or so, but when that picks back up, p.c. production will pick up, demand for intel's processors will pick up. >> reporter: but the sharp drop in intel shares today may reflect the ongoing debate over the company's outlook. researchers tracking the p.c. industry say the personal computer, if not dead, is at least growing slowly this year-- at roughly 4%. intel sees it differently, arguing personal computers are growing at double digits. the company is also making a big bet the increasing affordability of p.c.s in emerging markets will boost shipments, and it's backing that view with an investment of more than $10 billion in new factories. >> and i think that perspective is different than what most investors have in mind, so there are perceived discrepancies both
in terms of their results this year and in terms of their outlook. >> reporter: intel can also point to strong pricing and huge gross margins, but investors today seemed to be concerned that intel's future, while very strong, is not quite as strong as company forecasts. darren gersh, "nightly business report," washington. >> susie: more and more americans are skipping the mall and shopping online this christmas season. so far, online sales are up 15%. consumers have already spent almost $25 billion over the web. comscore tracks the number and predicts a strong finish to the holiday season. with all those packages ordered online, fedex is busy. the shipping giant believes today will be its busiest day ever, moving an estimated 17 million packages. that's almost double its average daily package volume. to help make sure all those deliveries get to where they're going, fedex has hired an additional 20,000 seasonal workers.
and tom, at least one investment house thinks fed-ex is on track for strong numbers this quarter. lazard capital said today fedex could see a spike in air freight deliveries this month. the one-two punch of warnings about european credit ratings and the profit warning of intel hit u.s. stocks hard. the session started out in the red and stayed there all day long. the s&p 500 bounced around its lows of the day until the last hour of trading, but the selling pressure eased up a little. still, pulling out to look at a 30 session chart, the index sits only a couple of points off its low of last week. financial stocks led the losers, with the financial sector
falling more than 2.5%. economically sensitive areas energy and materials each dropped more than 2%. despite the drop in the materials sector, there was a monday merger effort. construction materials firm martin marietta launched a hostile bid to buy rival vulcan materials. the offer from martin is for $5 billion in stock. at tonight's closing prices, that would give vulcan shareholders $36.69 per share as of friday's closing price. martin said it launched the hostile offer because talks with vulcan weren't progressing. with vulcan in play, shares shot up 15%, closing well above the implied buyout offer from martin. vulcan says it will advise shareholders within 10 days. martin marietta, meantime, also saw a bounce, up more than 1.5%. the intel profit warning darren reported in earlier hurt the tech sector, particularly the chip stocks.
as we mentioned, intel's warning is the third from the industry in the past week. the exchange-traded fund focused on semiconductor stocks dropped more than 3%. the technical trend for this fund over the past year has been a worrying series of lower highs. some of the stocks involved in the chip business making big moves today included chip equipment maker m.e.m.c.-- down 7%. others, cypress semi and applied materials, dropped 6% each. while some companies have brought down their profit forecasts, a couple of dow industrial stocks decided to increase their payments to shareholders. boeing's board of directors okayed a two-cent increase of its quarterly dividend. boeing will now pay shareholders 44 cents per share. and drug maker pfizer lifted its dividend to 22 cents per share the dividend boost didn't help shares of boeing today, though. the stock fell 1.5%. separately, boeing said it has almost 800 commitments from buyers for its newest 737 plane. that's 100 more than the update given just last month.
pfizer's dividend increase didn't help its stock price today either. shares dropped a fraction. they were at a five-month high friday. in addition to the dividend hike, pfizer also okayed spending up to $10 billion in more stock buybacks. the return of the european worries after the weekend was underscored by the selling of european-focused exchange traded funds. with the credit agencies skeptical of the latest deal, these funds fell by at least 4%. the italian, german and spanish e.t.f.'s all fell in sympathy to their home stock markets. and illustrative of today's appetite of less risk, even gold fell-- down almost 3%. it's the steepest drop in gold prices in almost three months. silver fell to $31 dollars an ounce, a drop of nearly 4%. copper fell more than 2.5%. finally, the troubles for nut and snack company diamond foods continue. the company expects to miss the
filing deadline for its quarterly results as it continues an internal audit into payments for walnut growers. that delay sent shares into a tailspin, losing more than a fifth of their value. even so, they remain above their most recent lows of last week. the stock has lost two thirds of its value since late september. and that's tonight's "market focus." >> tom: stress about the job market and the wild swings in
if you think activist shareholder, >> tom: but we haven't seen that yet. this has been one of the winners. >> they have 40 out of the top 50 and at a time when everybody is worried about europe and europe slowing down, their sales in europe continue to increase so they've seen no slowdown in europe. they said that they will
increase their advertising over the next six months. so things look really well for them in 2012. >> tom: for many of these established companies it is the emerge markets where they are seeing significant growth, isn't it? >> well, that's what avon thought. avon thought they were going to get this winning area in brazil and they made a lot of mistakes in their brazilian market so that really hasn't panned out for them. it's not just overall. >> tom: finally ata salon, ulta, big winner. 72 and change. close to a 52-week high. opening more stores next year. are the ambitions already priced in? >> well, you know, that's the worry here when you see a stock hit a 52-week high. but as you mentioned it is a square footage story. this company only has less than 400 stores. they can go up to a thousand storesment and they're really just doing so well. they're doing all the right things. they're selling large scale cosmetics like a sephora but this is a private company. so alta is really a company that you can get in on.
i think if they just keep reporting these store openings, every single quarter and sales going up, that stock is just going to keep going occupy with it. >> tom: dow own any of the stocks. >> i don't but i own some cosmetics. >> i'm sure you do. most of us do. with you read deborah-- debra's article ton thestreet.com. word on the street debra borchardt, with thestreet.com. >> susie: here's what we're watching for tomorrow: former m.f. global c.e.o. jon corzine is back on capitol hill facing questions from the senate agricultural committee about missing client money. also tomorrow, manpower issues its hiring outlook for next year and the federal reserve hosts its last policy meeting of the year. we'll find out what ben bernanke and other fed policymakers say about the economy. the justice department's challenge to the $39 billion merger of at&t and t-mobile is on hold. >> or whether to give up on
the merger all together this that comes after a fed ral judge ruled today to put the justice's departments challenge to the merger on hold, the judge wants eight to deliver a status report by mid-january that specifically states if it plans to fight for the deal. >> tom: in an unprecedented move the securities and exchange commission is going after the agency that ensures investor brokerage accounts in the u.s. the suit against the securities investor protection corporation known as the sipc is an effort to repay victims of an alleged $7 billion ponzi scheme by r allen standford's failed investments. standford was accused in 2009 of fabricating high returns and luring investors to buy particular at thiscious certificates of deposit. his trial is scheduled it to begin next month.
>> susie: with the end of the year coming fast, there are some things you can do now to cut your tax bill, and we're here to help. all this week our tax guru, kevin mccormally of kiplinger's personal finance, joins us with tax tips. tonight, kevin says now is the time to help your kids or grandkids take advantage of an easy tax win. >> here's a tip that could solve an immediate holiday gift-giving dilemma and, long term, earn you the reputation as your family's philanthropist. the idea is to help a child or grandchild get an early start on a financially secure retirement by taking advantage of one of the greatest tax breaks around: the roth i.r.a.
first things first. in order to contribute to an i.r.a., a person must have earned income from a job. investment income or a gift from a generous relative doesn't count. but there is nothing in the law that says a worker has to put his or her own money in the i.r.a. thats where you come in. if your teenage daughter made money last summer working retail, say, or a 20-something grandson is struggling to get by on a low-paying job, it's unlikely they'll want to or be able to lock up a dime of their earnings in a retirement account. but, you could give them the money to contribute. let's say you give your 17-year old daughter $2,500 for an i.r.a. she can contribute that much if she made at least $2,500 during the year. and, lets say that's the only money that ever goes into the account. if it grows at an average rate of 8% a year until she's 65, the account will be worth just over $100,000. all from your single, $2,500 holiday gift. using the roth means there's no up-front deduction, but since the person you're helping out is probably in a low tax bracket, that's not such a big deal.
and the roth trade-off is powerful. all withdrawals in retirement will be tax-free. i'm kevin mccormally. >> susie: in tomorrow's "tax tips," kevin looks at charitable gifts to make now. >> tom: and finally tonight, we're getting word the u.s. house of representatives will vote on the payroll tax cut tomorrow. lots on the docket for tomorrow. >> tom: that's "nightly business report" for monday, december 12. i'm tom hudson. good night everyone, and good night to you too, susie. >> susie: good night tom. i'm susie gharib. good night everyone. we hope to see all of you again tomorrow night. "nightly business report" is made possible by: